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A new settlement system for the multitrillion-dollar global foreign exchange market could require leading banks to spend up to £10m on IT integration projects, industry experts have warned.

The Continuous Linked Settlement (CLS) system from industry consortium CLS Bank is finally due to go live later this year - four years after the IT contract for the system was first awarded.

One of the biggest IT projects in the financial services sector in recent years, the CLS system, aims to reduce the risks associated with currency transactions by allowing simultaneous-settlement currency trading between banks. Previously, a potential time lag of up to 48 hours created financial risks (if one party went bankrupt during that period, for example).

However, the CLS system, supplied by IBM and backed by 67 banks, will pose substantial technical challenges to its banking users, according to industry experts.

A software module will link banks to the new settlement system. Banks will have to integrate the gateway with their IT systems and test the new interface thoroughly before going live with the system.

The total cost of this work could be between £5m and £10m for a large bank, said Daniel Mayo, lead analyst in the financial services group at analyst firm Datamonitor. He added that banks may have to integrate their back-office and front-office systems more closely to cope with the real-time information flow of the CLS system.

"Generally, back-office and front-office systems [in global banks] are now connected to some degree, but they have not always been designed to do real-time transactions," said Mayo. "A lot of back-office systems will have to be re-engineered or updated."

Fortunately, most global banks have had a lot of experience with this type of IT project, added Mayo.

The CLS system is currently being tested by some of its bank shareholders. The launch date for the system has been put back twice since 1998. The second delay was to allow IBM to carry out more software testing.

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